Carter's Benefits

eNewsletter Volume 2, Issue 1 March 2009


The American Recovery and Reinvestment Act
of 2009

This is a special notice we feel is of utmost importance to convey to our clients, friends, and associates.

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The American Recovery and Reinvestment Act of 2009, also known as the economic stimulus package was signed by President Obama on February 17, 2009.  Included in this law are provisions that impact COBRA, Texas State Continuation and “all” Employers offering group health plans in the State of Texas.

New Subsidy for Continuation Beneficiaries
(COBRA and Texas State Continuation)
The Act provides a new subsidy for certain COBRA and Texas State Continuation beneficiaries equal to 65% of the coverage premiums for up to 9 months.  The beneficiary will pay only 35% of the overall premium for the period.  The period expires on the earlier of (1) nine months, (2) date the individual becomes eligible for major medical group coverage or Medicare or (3) the end of the maximum period of continuation coverage.  

To qualify as an Assistance Eligible Individual (AEI) a qualified beneficiary must lose coverage due to involuntary termination of employment between September 1, 2008 and December 31, 2009.  The definition of a qualified beneficiary includes the covered employee, the covered employee’s spouse and the covered employee’s dependent children.  Each have separate election rights therefore even if the covered employee does not elect coverage, a covered spouse or child of the involuntarily terminated covered employee will qualify.  

Special election period
Employers will need to determine individuals who lost their coverage since September 1, 2008 in order to provide a second notice of their continuation rights explaining the new subsidy option. If an eligible employee did not previously elect COBRA, and chooses to elect COBRA with the subsidy his/her coverage would not be effective retroactively.  In addition, once elected, the gap in coverage between the date of the original qualifying event and March 1, 2009 is not considered a gap in coverage for purposes of applying a plan’s pre-existing condition limitation.

Qualified Beneficiaries that were terminated on or after September 1, 2008 but prior to February 17, 2009 and elected COBRA are eligible to receive the subsidy on a "go-forward basis" beginning on the next monthly bill, which in most cases would be March 1st.

Qualified Beneficiaries that were terminated on or after September 1, 2008 but prior to February 17, 2009 and “did not” elect COBRA during their initial 60-day election period will also be given an second notice to elect COBRA and recieve the subsidy. This also applies to individuals who elected COBRA coverage but have subsequently lost that coverage prior to the enactment date (i.e. due to nonpayment of premiums).  If these AEIs now elect COBRA coverage, their coverage will extend back to the law enactment date, however the maximum length of COBRA is measured from the original qualifying event.

There are two exceptions as to who applies for the subsidy

  • If continuation is under a multi-employer plan (collectively bargained multiple employer plans) the plan is ineligible for the payroll tax credit.
  • In the case of a fully insured plan when the continuation is a result of state law (as in Texas State Continuation), the insurer receives the credit.

Mechanics of the subsidy
For COBRA a payment made by the AEI equal to 35% of the applicable premium is considered payment in full.  The employer is required to make up the balance by reducing its employment tax deposits and reporting these offsets on a revised Form 941, which the IRS is currently finalizing.  For state continuation the law indicates the carrier will take the credits.  In Texas most State continuation premiums are collected by the employer. We are in contact with the carriers to see how they will handle the shortage, or will they be reimbursing employers who pay the full premium.

AEIs are eligible for the assistance for up to 9 months. However if they become eligible for other group health coverage or Medicare, or should they reach the end of his/her maximum COBRA coverage period, the entitlement to the subsidy ends.  AEIs must provide timely written notice that they no longer qualify if they become eligible for other group health coverage or Medicare.  Failure to do so is punishable by a penalty equal to 110% of the subsidy received after becoming eligible for other coverage.

Eligibility Limitations – Income Test
Individuals with modified adjusted gross income that exceeds $125,000 ($250,000 joint filers) are not eligible for the full subsidy.  However they may be eligible for a portion of the subsidy.  Individuals earning between $125,000 and $145,000 ($250,000 and $290,000 joint filers) will see part of the subsidy they recieve as income on their taxes. Individuals earning more than $145,000 ($290,000 joint filers) will see the whole COBRA Subsidy passed down as income and taxed.  These individuals have the right to waive the subsidy and pay 100% of the COBRA premium; how the subsidy is waived has not been established.

Option for a lower cost plan
The Act allows employers to offer AEIs the option to change their health insurance coverage when making a COBRA election.  This provision is optional and an employer is not required to make this option available.  The new coverage must have the same or lower premiums, be elected within 90days of the notice, and must be available to all current full time employees who are not currently on COBRA. 

How does the Act impact Employers - New Notice Requirements
The Act requires employers to modify their COBRA election notices or provide separate, supplemental notices to all individuals who became entitled to elect COBRA continuation coverage during the period beginning on September 1, 2008 and ending December 31, 2009. These notices must include all of the following:

  • Explanation of eligibility requirement for the subsidy
  • Name, address, and phone number of the plan administrator for questions
  • Description of the qualified beneficiary’s obligation to notify the plan if they become eligible for coverage under a group health plan or Medicare, and a description of the penalty for failure to notify
  • A description of the qualified beneficiary’s right to a reduced premium and any conditions on entitlement to the reduced premium
  • A description of the election of different coverage option (if the employer chooses to offer this)

Those COBRA qualified beneficiaries who were involuntarily terminated between September 1, 2008 and February 17, 2009 must be issued a revised notice including the information outlines within 60 days of the enactment date. These notices must also describe the second 60 day COBRA election periods and state that the maximum COBRA coverage period is still measured from the date of the original qualifying event.  The law as written requires this notice to go to all individuals who were eligible for COBRA not just those who were eligible for the subsidy.

The Department of Labor, Treasury, and Health and Human Services have been charged with working together to provide a model notice within 30 days of the enactment.  Our office will forward these forms once available.  Failure to provide the notices would be a COBRA violation and subject to the standard COBRA penalties of up to $110 a day under ERISA.    Additionally there could be tax consequences under the IRS, which could impose excise taxes of $100 per day per notice.

The DOL has an expedited time frame of 15 business days for reviewing any subsidy- related complaints made by Qualified Beneficiaries. The Treasury has been tasked with monitoring compliance and reporting on the program’s effectiveness.  Bottom line, compliance with this law will be closely scrutinized.

Increase in Transit Pass Limit for Transportation Plans
The Act also changed the monthly reimbursement limits for transit passes under 132(f) of the Tax Code.  Starting March 2009 and continuing through December 2010, the limit for transit passes will equal the parking limit of $230.

Health Information Technology and HIPAA Privacy Security
The Act allotted about $17 billion to invest in health information technology, providing incentives to providers to begin using electronic health records.  The law also expands the reach of HIPAA to certain entities that would normally not qualify as business associates, those that maintain or access personal health records or are classified as health information exchange organizations.

This information is provided for your information only.  TBS does not render legal, accounting, or other professional advice.  If you need legal advice please seek the opinion of a qualified attorney.

If you have questions or would like more information on this complex subject, or if you do not currently have someone administering COBRA for you, please give us a call or send us an email.  Our email address is Questions@CartersBenefits.Com

Your Benefit Consultant Team

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